Vaalco (EGY) Q3 2026 earnings review
Vaalco pumps more oil, but it cuts its sales plan
Vaalco, which pumps oil in Gabon, Egypt and Côte d'Ivoire, produced much more oil but still borrowed to drill. Output after royalties rose 21% from last quarter as a refurbished field off Côte d'Ivoire restarted. Operating cash profit excluding one-offs climbed 30%, but hedge losses left a net loss. By our math, net debt grew about $41 million in three months.
| Oil output after royalties | 20,145 barrels a day +31% from a year ago |
|---|---|
| Operating cash profit, excluding one-offs | $71.1M $54.8M last quarter |
| Net debt | $187.7M $146.6M at June 30 |
| Full-year oil sales outlook | Cut middle of the range: 17,525 barrels a day, from 18,575 |
⚖️ Verdict: 🔴 Bearish
The story got worse, because Vaalco now plans to sell less oil this year. The oil group trimmed the middle of its full-year sales range by 6% and lowered its output range. The good news: new wells delivered, and spending drops as Gabon drilling ends.
The question now is whether unsold barrels and new Baobab wells lift sales early in 2027, before lenders shrink the credit line. If they do, debt can start falling; if wells slip, Vaalco has only $61 million of unused credit left. First-quarter 2027 results will tell.
🐂 Bull Case
Oil Output Rose by a Fifth in Three Months
Vaalco pumps oil from offshore fields in Gabon and Côte d'Ivoire and from onshore fields in Egypt. Its 2026 plan rested on new Gabon wells, more Egyptian drilling and the restart of Baobab, a field off Côte d'Ivoire, after a year-long refit of its production ship.
All three areas pumped more in the third quarter. Baobab resumed in June, and Vaalco loaded its first cargo there in August. Chief executive George Maxwell said the new Gabon wells added almost 2,500 barrels a day from a year ago.
- Output after royalties: 20,145 barrels a day, up 21% from last quarter
- Gabon, Vaalco's share: 9,577 barrels a day, up 35% from a year ago
- Côte d'Ivoire share of output: 16%, up from 5% last quarter
Maxwell calls the Baobab wells now being drilled "high volume, high margin wells", but he said they "will not make a significant impact until 2027". Output after royalties also remains below the 21,770 barrels a day of two years ago, so part of this jump restores lost volume.
What to watch: the first Baobab well of Phase Five, the new drilling campaign, which Maxwell said should start in early December. An on-time start would keep output rising into 2027.
Cheap Egyptian Wells Keep Adding Barrels
Egypt is Vaalco's largest producing area, and the group sells all its oil there to the state oil company, EGPC. Finance chief Ronald Bain said EGPC's payments are up to date. Drilling restarted in May, and crews finished five wells in the third quarter.
Maxwell called them "low cost high impact wells", with "500 to 700 barrels a day on the new wells". Each costs about $1.5 million, he said. Egypt output rose 7% from a year ago, to 11,586 barrels a day. Vaalco extended drilling into 2027 without raising its yearly spending plan.
What to watch: Egypt output in the fourth quarter, which the plan puts at 11,200 to 12,000 barrels a day. A figure near the top would show the extra wells add volume instead of just offsetting older wells' decline.
Production Cost per Barrel Fell From Last Quarter
Production cost is what Vaalco spends to run its fields: fuel, chemicals and crews. In Gabon, a new gas well now powers field equipment, so the company can "significantly reduce reliance on higher priced diesel" shipped in by boat.
Cost per barrel sold fell to $26.44 from $28.05 in the second quarter. The bigger change shows against revenue, because oil prices climbed. Production expense took 30.6% of revenue, down 18.4 percentage points from a year ago.
Maxwell said a review of how Gabon runs should lower spending there, which will cover "only essential maintenance for 2027". But Bain warned of cost inflation tied to the war in the Middle East.
What to watch: cost per barrel in the fourth quarter, when more cargoes come from West Africa. A figure under the third quarter's would show the savings outlast dearer fuel and freight.
🐻 Bear Case
This Year's Sales Plan Shrank by 6%
Vaalco books revenue only when a tanker loads a cargo, called a lifting. Oil it pumps but has not shipped waits in storage, so sales can trail output by months. By our math, the plan set in August implied fourth-quarter sales near 26,100 barrels a day.
The new plan is smaller. The middle of the full-year sales range dropped 6%, and the fourth-quarter range centres on 21,700 barrels a day. Bain also expects lower Côte d'Ivoire output while drilling shuts parts of the field.
- Full-year sales plan, middle: 17,525 barrels a day, down from 18,575
- Full-year output plan, middle: 17,975 barrels a day, down from 18,450
- Third-quarter output: under the middle of its range for a second quarter
This matters because paying down debt needs cash from cargoes, not oil in tanks. Maxwell wrote that "we deliver on our forecasts and grow production in a strong commodity price environment". Output did climb, but it landed under the middle of its range again, and the year's sales plan shrank.
What to watch: fourth-quarter sales against the bottom of the range, reported in March. A shortfall would push more cargoes into 2027, the year lenders start trimming Vaalco's credit line.
Borrowing Paid for Drilling and the Dividend
Vaalco funds its drilling with a reserve-based loan, a credit line secured on its oil fields. Maxwell wrote: "We are forecasting free cash flow generation in the second half of 2027, assuming sustained strong commodity pricing." The same release reports $12.5 million of free cash flow for the first nine months.
That figure includes borrowed money. Vaalco defines free cash flow as the change in cash plus dividends, so $179 million of new loans sit inside it. By our math, operating cash flow minus spending on wells came to about minus $179 million, almost exactly what it borrowed.
- Net debt: $187.7 million, up from $146.6 million in June
- Unused credit: $61 million, down from about $123 million in June
- Credit line cuts: $15.8 million in March 2027, then $35.5 million every six months
Bain told analysts "We believe that we are appropriately leveraged", and by our math net debt equals about one year of operating cash profit. But the dividend, about $6.7 million a quarter, went out while borrowing rose.
What to watch: net debt at year-end, reported in March. A fall would show bigger fourth-quarter sales and smaller spending finally cover the dividend.
Price Hedges Cost $22 Million in the Quarter
Vaalco's lenders require it to hedge part of its oil. It uses collars, contracts that set a floor and a cap on the price for some barrels. With Brent, the global benchmark, averaging $96.30 a barrel, the caps cost $22.3 million in cash.
Hedges cut the price Vaalco realized to $70.51 a barrel from $83.64. That gap equals about 16% of the price, by our math. The company also booked a $34.7 million paper loss on open contracts. Bain said Vaalco will now "opportunistically hedge".
What to watch: the realized price after hedges in the fourth quarter, when contracts on about 1.1 million barrels carry an average cap of $96.05. A smaller gap would show the newer, higher caps are working.
Risks this quarter didn't answer
Five standing risks got no clear test in the third quarter. Either the data is not out yet, or the period that settles them still lies ahead.
- Oil price: profits still rest on Brent near $96; the first quarter at lower prices will show margins at mid-cycle levels.
- Well performance: Vaalco gave no update on Ebouri-5H, the Gabon well where water rose faster than planned; fourth-quarter Gabon output will show whether other wells follow.
- Baobab costs: another company runs the field, and the ship refit ran over budget; Côte d'Ivoire spending in the fourth quarter will show whether Phase Five holds to plan.
- Country exposure: Vaalco sells all its Egyptian oil to the state; a new build-up of unpaid bills would show in the March balance sheet.
- Exploration: the West Etame well found water this year, and Maxwell does not expect to drill block CI-705 before 2028.
👓 Other Themes
Vaalco Expects a Venus Decision Before Year-End
Venus, an undeveloped oil discovery off Equatorial Guinea, is the next large project Vaalco runs, with a 60% stake. Maxwell said the team is studying "a subsea development versus the original shelf development" and expects a final investment decision before the end of 2026. Vaalco also won approval for a second exploration phase at block CI-705, which includes one well.
War Pushes Up Fuel and Freight Costs
Brent averaged $96.30 in the quarter, 39% above a year earlier, and the quarterly filing lists the United States-Israel-Iran war among the forces moving markets. Bain said "we may see some inflationary pressure leading to expense increases in the near term". Maxwell added that "the freight costs are increasing considerably".
💲 Other KPIs
Depreciation, depletion and amortization, the cost of wells and equipment spread over each barrel sold, climbed for a second quarter. It reached $25.54, up 47% from a year ago. New Gabon wells and the Baobab restart added cost. It takes about 30% of revenue, against 34% a year ago.
Adjusted EBITDAX, earnings before interest, tax, depreciation and exploration costs excluding one-offs, rose 30% from the second quarter. It has climbed from $11.6 million in the first quarter. It equalled 48% of revenue, up from 41%. The measure already absorbs cash losses on hedges.
Current income tax, much of it paid in barrels to the governments of Gabon and Côte d'Ivoire, rose to $25.5 million from $15.8 million. Bain said neither state will take a tax cargo for the rest of 2026, because drilling costs get recovered first. Cash taxes paid totalled $10.1 million.
🔮 Guidance
New. The plan has sales rising about 18% from the third quarter as more cargoes load. Bain expects three Gabon cargoes and two from Côte d'Ivoire, one of them small and reserved for the local market.
New. Output holds roughly level with the third quarter, at a middle of 19,850 barrels a day. Gabon and Egypt add barrels, while drilling shuts parts of Baobab for a while, Bain said. From a year ago, that is a rise of about 23%.
New. Working-interest output stays near the third quarter's 25,284 barrels a day. The outlook table puts Gabon at 9,800–10,900, above its third-quarter level.
New. Sales before royalties run above output, because cargoes clear oil held in storage. Gabon accounts for 11,000–11,600 barrels a day of the range.
New. The middle, $55 million, sits 22% above the third quarter. Vaalco sells more barrels, and the cost of stored oil moves into expense when it ships.
New. The middle, $26.75, sits slightly above the third quarter's $26.44. Bain described the range as slightly lower than the third quarter, but the published figures do not show a drop.
New. Spending covers seismic processing at CI-705 and at the Gabon blocks Niosi and Guduma, Bain said. It drops from $4.8 million in the third quarter, which included Gabon drilling costs.
New. Cash overhead, meaning general and administrative costs excluding stock pay, has a middle of $8.5 million. The third quarter ran low at $7.4 million after one-off legal fees dropped out.
New. The company calls it a decrease. The middle, $65 million, sits about 23% below third-quarter spending, because Gabon drilling has ended. Baobab's Phase Five wells and Egyptian drilling make up most of it.
New. The middle, $21.50, implies a drop of about 16% from the third quarter. That would reverse two quarters of increases, and the March report will test it.
Cut. The middle fell 6%, to 17,525 barrels a day. By our math, it leaves about 21,560 for the fourth quarter, in line with the quarterly range. Vaalco had raised this plan in May.
Cut. The middle slipped to 17,975 barrels a day from 18,450. Earlier this year Vaalco had raised it twice. By our math, the range leaves about 19,880 for the fourth quarter.
Unchanged, but narrower. The new range sits inside the old one, and its middle of 23,075 barrels a day is 500 lower. Bain said Vaalco narrowed each area's range to reflect nine months of results.
Unchanged, but narrower. The range sits inside the one set in May. Its middle of 22,675 barrels a day is below the earlier 23,175.
Unchanged. The range now sits inside the August range. Its middle of $173 million leaves about $54 million for the fourth quarter by our math, matching the quarterly range.
Unchanged after royalties. The working-interest range sits $1 higher than in May. Nine months came in at $26.91 a barrel, near the middle.
Unchanged, narrower. Nine months reached $27.3 million, mainly Gabon seismic and a well that found water, so little remains for the fourth quarter.
Unchanged at zero. Electric pumps in Gabon's wells keep running, so Vaalco has skipped repair jobs, Maxwell said. An in-country unit can do the work later at lower cost.
Unchanged. The fourth-quarter range of $7.5–9.5 million fits inside it.
Unchanged, but narrower: the middle dropped $10 million to $315 million. Spending in Egypt rose inside the same total. Côte d'Ivoire takes 55% of the year's budget, including about $98 million for the ship refit and tie-in.
Raised from the May range. Nine months averaged $21.72 a barrel, because new Gabon wells and the Baobab restart added cost to spread over each barrel.
❓ Key Questions
How high will net debt go, and when?
Net debt reached $187.7 million and unused credit fell to $61 million. Lenders start cutting the credit line in March 2027, so investors need the peak debt figure and its timing.
How much of 2027 oil is hedged, and at what caps?
First-quarter 2027 collars cap prices at $75.09 on 733,000 barrels. Vaalco has not said what share of 2027 output that covers, or what the caps could cost if Brent stays high.
When will the barrels cut from this year's sales ship?
The full-year sales plan shrank while about 382,000 barrels sat in storage at September 30. A cargo schedule for early 2027 would show whether the cut is timing or lost volume.
Did the Ebouri well problem shrink Gabon's drilling list?
Maxwell said Vaalco is evaluating the Gabon campaign and limiting 2027 spending there to maintenance. Investors need to know whether the water problem at Ebouri-5H reduced the number of future wells.
What will Venus cost, and how will Vaalco pay?
A final decision is due before year-end, while debt sits near its peak. The subsea option changes the cost, and Vaalco has not said how much it plans to borrow for it.